Chip price war unfolds as Chinese foundries cut tape-out prices — Taiwan and South Korean foundries face new price pressures: Report

GlobalFoundries
(Image credit: GlobalFoundries)

To ensure the maximum utilization of their fabs today and in the future, Chinese chipmakers have already started cutting tape-out prices to retain existing customers and attract business from Taiwanese IC design companies, reports IJIWEI (via TrendForce). This trend comes as China is expanding its mature node production dramatically as it appears to plan to flood the market with chips to push out competitors. Chinese contract chipmakers have yet to increase their output considerably, but gaining customers will be important as it increases production throughout the coming quarters.

Mainland China-based SMIC, Hua Hong Semiconductor, and Nexchip reduced their tape-out service prices last year for Taiwanese chip design companies to secure orders for new capacity. As a result, some customers of GlobalFoundries, PSMC, Samsung Foundry, and UMC canceled their orders with their regular production partners as they geared up to move them to Mainland China's wafer fabs, according to the report.  

In response to the Chinese price cuts, Taiwan-based UMC and PSMC reportedly had to lower their prices to remain competitive. UMC reportedly reduced its quotes for its 300-mm wafer foundry services by 10% to 15% and 200-mm wafer services by around 20%. This change took effect in the fourth quarter of 2023, indicating a direct reaction to the market pressures initiated by Chinese foundries. The report claims that Samsung Foundry also joined this price competition in the first quarter of the year, offering discounts ranging from 5% to 15%. 

In addition to looming capacity expansion at Chinese foundries, the semiconductor market's overall sluggishness in 2023 catalyzed some of these price reductions. China and South Korea have reduced their prices aggressively, with cuts of 20% to 30% observed in 200-mm and 300-mm mature processes. Taiwanese foundries have also had to cut pricing to maintain their market positions.  

Even TSMC, which is the world's No. 1 foundry that earned 75% of its revenue in Q4 from FinFET-based process technologies (16nm and below), made some adjustments to its quotes to make its services a little bit more attractive to customers amid slow demand for chips, the report claims. In particular, TSMC reduced mask services costs for the processes (which is set to make masks cheaper for new designs), but the extent of cuts depended on order volumes.

With China-based foundries cutting down their tape-out quotes and production prices even before they install all the tools they procured and build all the fabs they are constructing, we can only wonder how they will behave once the new capacity comes online. The sanctions against China's semiconductor sector do not affect mature nodes, so Chinese companies can and will steal customers of other foundries using mature technologies in the coming years.

Anton Shilov
Contributing Writer

Anton Shilov is a contributing writer at Tom’s Hardware. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • thestryker
    This is certainly the part of the market everyone should have their eyes on. It's why Intel was trying to acquire Tower and likely why China didn't approve it. Nobody is going to be building fabs for legacy nodes let alone new 200mm wafer fabs so it's up to the existing to keep on producing.
    Reply
  • Notton
    Okay, but which segments are they going after?
    NAND/DRAM?
    12~18nm used in device controllers, cars, etc?
    CPUs?
    Reply
  • usertests
    Notton said:
    Okay, but which segments are they going after?
    NAND/DRAM?
    12~18nm used in device controllers, cars, etc?
    CPUs?
    Seems like NAND/DRAM would be perfect. Doesn't need the leading nodes, and it's a commodity that everyone wants cheap and can be subject to price fixing.

    https://www.tomshardware.com/news/chinas-ymtc-ships-232-layer-3d-qlc-nand-worlds-highest-recording-densityhttps://www.tomshardware.com/pc-components/ssds/xiaomi-reportedly-using-china-based-ymtcs-232-layer-3d-nand-memoryhttps://www.tomshardware.com/news/chinas-ymtc-xtacking-4.0
    Reply
  • dmitche31958
    Notton said:
    Okay, but which segments are they going after?
    NAND/DRAM?
    12~18nm used in device controllers, cars, etc?
    CPUs?
    Any and all. If they can steal the business away from western companies then China wins. They may not make money and dump the products just to cover fixed overhead. I wouldn't be surprised to see the World Court being filled with cases in the coming year.
    Reply
  • Unolocogringo
    This was an expected move.
    China has done this in all industries with its cheap labor and government subsidies.
    This is why other countries have started to do the same with the US, Germany and EU implementing their CHIPs acts.
    Otherwise China will price competition out of the market and then be the sole supplier.
    Their standard operating procedure time and again.
    This is a tricky "Political" subject, so I hope my post is received as common sence and not political theater.
    Reply
  • ThomasKinsley
    The price cuts will be good for consumers, at least in the short term. It would be even better if this reverses the predicted shortage of NAND chips that is supposedly set to cause price hikes.
    Reply
  • watzupken
    Matured nodes may not net as much profit as cutting edge ones, but they still contribute substantially due to numbers sold. Most electronics don’t use cutting edge nodes for their chips. So there’s always this concern of China dominating this segment. To be fair, nobody can blame China for “flooding” the market. There’s always willing demand and supply. For profit companies will always gravitate towards more affordable options. Nobody other than shareholders is “forcing” these companies to choose Chinese fabs. Ultimately, it benefits consumers as clearly illustrated in this case where leading fabs are forced to charge lower, drop their profit margins.
    Reply